Challenging Conventional Policy Wisdom
Chapter 4: Planning for a housing crisis: or the alchemy by which we turn houses into gold
A common thread in this book is how unexpected consequences, often the exact opposite of those intended, can result if policy is formulated without allowing for the power of markets. No policy arena offers a more dramatic example of this than British planning - land use regulation - policy. In very simple terms what British land use regulation - planning - has done is restrict the supply of housing space. It restricts the amount of land available for housing and it also restricts the height of buildings. Look at the skyline of London compared to New York, where height restrictions increase house prices (Glaeser et al. 2005). What do economists know about the impact of these kinds of restrictions? Economists like to retain a healthy level of scepticism about everything and much in economics is uncertain and debated. But there are some things on which nearly all mainstream economists would agree. Perhaps the nearest to unanimity one could find would be the proposition that if the supply of a good does not vary much as its price changes, and if the demand for that good rises proportionally more than incomes as incomes rise but is subject to cyclical fluctuations, then the price of that good will rise over the long run relative to other prices and its price will be volatile over the cycle.
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